Economic Focus For the week of March 14, 2016

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Most people say that it is the intellect which makes a great scientist.

They are wrong: it is character.  Albert Einstein


Freddie Mac’s Insight & Outlook (Pt 1)


Here are excerpts of Freddie Mac’s Economic & Housing Research of 03/16:
Economic & Housing Research:
Statistically significant impacts and differences are highlighted in Exhibit 2. For instance, the changes in average credit score are statistically significant for the treatment group (16.3 points for non-homeowners, 16.1 points for homeowners). However the impacts on the control group and the differences in impact across the groups are not statistically significant. This pattern of results may seem a little confusing. After all, Exhibit 1 shows the same pattern of impacts on average credit score, but in Exhibit 1 the impacts are statistically significant for both the control and treatment groups. However dividing the experiment participants into non-homeowners and homeowners in decreases the size of the groups, and, as we noted above, it is more difficult to identify statistically significant impacts and differences in smaller groups.
The changes in total non-mortgage debt display an intriguing pattern. Non-homeowners increased their total debt over the course of the experiment, and the treatment group increased their debt more than the control group. In contrast, homeowners decreased their total debt, and the treatment group decreased their debt more than the control group. (Only the $3,109 decrease in debt by homeowners in the treatment group is statistically significant.)
Perhaps non-homeowners felt able to increase their non-mortgage debt because they didn?t face the debt burden of a mortgage. Conversely, homeowners may have pared back non-mortgage debt in anticipation of buying a home and taking on a mortgage. There is some evidence that the individual counseling produced a statistically significant reduction in future delinquency especially among homeowners.
Freddie Mac believes objective, unbiased homebuyer education and counseling can improve the ability of borrowers to make prudent homeownership and home financing choices. The benefit is likely to be greatest for first-time homebuyers, and, as a result, Freddie Mac requires financial literacy education for first-time homebuyers who take advantage of Freddie Mac’s low-down-payment program, Home Possible Advantage.
The Philadelphia Fed?s five-year experiment supports Freddie Mac’s belief in the benefits of pre-purchase homeownership counseling. The two-hour workshop provided to all participants produced statistically significant increases in credit scores. Both the workshop and the individual counseling provided to the treatment group reduced future delinquencies, especially among homeowners. The experimental design employed by the Philadelphia Fed addresses some of the challenges faced by non-experimental studies and increases confidence in earlier research that documented the benefits of both homeownership education and counseling.
Outlook: Slower growth and lower mortgage rates: 
The pace of growth in the U.S. slowed to a crawl in the last quarter of the year, raising questions about how much life is left in this aging expansion. In addition, expectations of global growth continued to ratchet down. The market volatility in the first two months of 2016 only heightened concerns about the health of the world economy and probably forestalled any further monetary tightening by the Fed until June.
– Real growth in the U.S. slowed to 0.7% in the fourth quarter according to the advance estimate released by the Bureau of Economic Analysis. In January, the International Monetary Fund estimated the world economy grew 3.1% in real terms in 2015, and it lowered its previous projections for 2016 and 2017 to 3.4% and 3.6%, respectively.
– Inflation remained low. Growth in the GDP deflator dropped from 1.3% in the third quarter to 0.8% in 4Q15. Other broad-based measures of inflation and inflation expectations remain subdued.
Key Economic Reports Released This Week

Mon 03/14 FOMC Meeting Federal Reserve Board
Open Market Committee
No rate change
Neutral Bias
**** Determines Policy
Tue 03/15
8:30 am et
Retail Sales
for February ’16
Bureau of the Census
Dept. of Commerce
x-auto -0.2%
**** ?If above consensus
?If below consensus
Tue 03/15
8:30 am et
Producer Price Index
for February ’16
Bur. of Labor Statistics
Department of Labor
core 0.1%
*** ?If above consensus
?If below consensus
Tue 03/15
8:30 am et
Empire State Mfg Survey
for March ’16
Federal Reserve Bank
of New York
-11.25 ** ?If strong demand
?If weak demand
Tue 03/15
10:00 am et
NAHB Housing Index
for March ’16
National Association
of Home Builders
59 ** Undetermined
Tue 03/15
10:00 am et
Business Inventories
for January ’16
Bureau of the Census
Dept. of Commerce
0.0% * ?If above consensus
?If below consensus
Wed 03/16
1:00 pm et
MBA Mtg Apps Survey
for week ending 03/11
Mortgage Bankers Association of America N/A * Undetermined
Wed 03/16
8:30 am et
Consumer Price Index
for February ’16
Bur. of Labor Statistics
Department of Labor
core 0.2%
*** ?If above consensus
?If below consensus
Wed 03/16
8:30 am et
Housing Starts / Permits
for February ’16
Bureau of the Census
Dept. of Commerce
HS 1.146M
BP 1.202M
*** ?If above consensus
?If below consensus
Wed 03/16
9:15 am et
Industrial Production / Cap
for February ’16
Federal Reserve Board IP 0.0%
CU 81.9%
*** ?If above consensus
?If below consensus
Wed 03/16
2:00 pm et
FOMC Policy Statement
Open Market Committee
Federal Reserve Board No rate change
Neutral Bias
**** Determines Policy
Thu 03/17
8:30 am et
Jobless Claims
for week ending 03/12
Bur. of Labor Statistics
Department of Labor
270k * ?If above consensus
?If below consensus
Thu 03/17
8:30 am et
Philadelphia Fed Survey
for March ’16
Federal Reserve Board
of Philadelphia
-1.4% ** Undetermined
Thu 03/17
8:30 am et
Current Account
for Q4 ’15
Bureau of the Census
Dept. of Commerce
-115.0B * Undetermined
Thu 03/17
10:00 am et
Leading Econo Indicators
for February ’16
Bur. of Econ. Analysis
Dept. of Commerce
0.2% *** ?If above consensus
?If below consensus
Fri 03/17
10:00 am et
Consumer Sentiment
for March ’16
Reuter’ s/
University of Michigan
92.2 * ?If above consensus
?If below consensus


* Low Importance ** Moderate Importance *** Important **** Very Important





Volume 22, Number 20 Economic Highlights for the Week Ending March 11, 2016
MONDAY, March 7th
Consumer credit outstanding increased $10.5 billion in January, much less than an expected $16.8 billion gain; moreover, credit outstanding in December was downwardly revised from an initial estimate of $21.3 billion to a $6.4 billion gain. Consumer credit grew at an annualized pace of 3.6% in January about half the annual rate of 7.6% in December. Non-revolving credit growth continued to lead the way with an $11.6 billion increase; revolving credit balances declined $1.1 billon on the month. Student loans and auto financing continue to be the main credit drivers; consumers appear to be judicious about using credit cards for spending.
TUESDAY, March 8th
Small business sentiment weakened in February; the National Federation of Independent Business small business optimism index dropped from 93.9 in January to 92.9 in February, its third decline in the past four months. Six of the 10 components of the index fell last month. Fewer firms reported plans to increase employment or make capital outlays while earnings trends weakened. Also, plans to increase worker compensation fell for the second straight month while job openings that are hard to fill remained at a very high level. Still, despite some of the less positive readings and declines, underlying scores remain fairly strong for business investment and employment going forward.
WEDNESDAY, March 9th
The MBA mortgage applications index rose 0.2% for the week ending March 4. The purchase index rose 4.0% last week and is up a sizable 30% over the same week one year ago. Demand for refinancing has also been strong though the refinance index slipped 2.0% in the latest week. Contract mortgage rates moved higher last week, for the first time in several weeks and that may have impacted refinancing activity. The 30-year fixed rate mortgage for conforming loans gained 6 bps to 3.89%.
Refinances made up 50 percent of Freddie Mac?s fundings ($76 billion) in the last quarter of 2015. Mortgage rates remained within a 25 basis point range in the fourth quarter and dipped to within 17 basis points of the low for the year, providing support for continued refinance activity. Freddie Mac?s share of cash-out borrowers, defined as those who increased their loan balance by at least 5 percent, increased four percentage points to 43 percent. This represents the highest share of cash-out refinances since 2008. Prior to 2009, the share of cash-outs ranged from 32 percent to 89 percent (in 2006) and averaged 64 percent of all refinances. During the Great Recession, cash-outs plummeted as house prices collapsed. The share of cash-outs hit a low of 12 percent in the second quarter of 2012 and didn?t rise above 20 percent for the next two years. Starting in 2014, the share of cash-out refinances has risen gradually but remains well below the pre-recession historical average.
THURSDAY, March 10th
Jobless claims plunged 18k to 259k for the week ending March 5. Initial claims are now among their lowest levels seen in the past 40 years. Trends continue to improve with declines in the 4-week moving average and continuing claims as well.
FRIDAY, March 11th
Import prices fell 0.3% in February after falling a revised 1% in January and 1.2% in December. February?s decline is among the smallest recently, but it needs to stick. Import prices rose in May and June last year, only to quickly resume declining. Therefore, it?s premature to assume that the drag from lower import prices is set to vanish. Imported petroleum prices fell 4% in February after falling 14.3% in January. Excluding petroleum, import prices slipped just 0.1%.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 17213.31 17006.77 +206.54 or +1.21%
NASDAQ 4748.47 4717.02 +31.45 or +0.67%
The slowdown in domestic economic growth and market volatility in the first two months of 2016 combined with concerns about the health of the global economy will likely result in a steady path for interest rates when the FOMC meets in the coming week to decide on monetary policy. The next move higher for rates will continue to be data-dependent so the economic calendar does provide fodder for rate decisions to come after the March meeting. Retail sales, new construction starts and the consumer price index all for the February period will let us know if the economy is starting to pull out of its funk.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 3.50 3.25 3.25
Fed Discount 1.00 0.75 0.75
Fed Funds 0.37 0.14 0.12
11th District COF 0.664 0.643 0.698
10-Year Note 1.98 2.21 2.14
30-Year Treasury Bond 2.75 2.97 2.72
30-Yr Fixed (FHLMC) 3.68 3.90 3.86
15-Yr Fixed (FHLMC) 2.96 3.10 3.10
6-Mo Libor (FNMA) 0.88590 0.53425 0.38070
Sources: IBC’ s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Upward pressure on interest rates
Downward pressure on interest rates
No pressure to change interest rates
News worthy





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